Question

Quantitative Problem: You are given the following probability distribution for CHC Enterprises:

State of Economy Probability Rate of return

Strong 0.15 20%

Normal 0.5 9

Weak 0.35 -4

What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. 6.10 %

What is the stock's standard deviation? Round your answer to two decimal places. Do not round intermediate calculations. %

What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations.

Answer #1

**Expected return**=Respective return*Respective
probability

=(0.15*20)+(0.5*9)+(0.35*-4)

**=6.1%**

probability | Return | probability*(Return-Expected Return)^2 |

0.15 | 20 | 0.15*(20-6.1)^2=28.9815 |

0.5 | 9 | 0.5*(9-6.1)^2=4.205 |

0.35 | -4 | 0.35*(-4-6.1)^2=35.7035 |

Total=68.89% |

**Standard deviation**=[Total
probability*(Return-Expected Return)^2/Total probability]^(1/2)

=(68.89)^(1/2)

**=8.3%**

**Coefficient of variation=**Standard
deviation/Expected return

=8.3/6.1

**=1.36(Approx)**

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